UPDATE 1-Argentina weighs delays to tax reform plan due to IMF deal

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By Eliana Raszewski and Luc Cohen

BUENOS AIRES, July 13 (Reuters) - Argentina may delay implementing elements of a tax reform passed last year to meet its fiscal deficit goals as part of a deal with the International Monetary Fund (IMF), according to a government official and a fund document published Friday.

Delaying parts of the bill, such as cuts to employers’ social security contributions and a deduction for a financial transactions tax, would trim the deficit by 0.3 percent of gross domestic product (GDP) in 2019, IMF staff wrote in a report dated June 13. The report had not been released previously.

A government official who spoke on the condition of anonymity said those delays were possible if efforts to cut spending proved insufficient, but said that President Mauricio Macri had ruled out another policy laid out in the IMF document - maintaining taxes on soybean exports.

“Our priority is to go the way of cutting spending,” said the official. “If we see that we are not reaching our targets with spending cuts, then we could go more slowly with the tax reform.”

A run on the country’s peso currency earlier this year amid a worldwide investor retreat from emerging markets and concerns about Buenos Aires’ ability to fight inflation prompted Argentina to request a $50 billion stand-by arrangement from the IMF in May, which the fund’s board approved on June 20.

The fund report said maintaining soy export taxes at an average of 25.5 percent, rather than going ahead with planned gradual cuts, would save 0.1 percent of GDP from the 2019 deficit. Authorities previously said cuts would continue as planned despite the austerity push.

Shortly after taking office in December 2015 after winning election on a market-friendly platform, Macri eliminated export taxes for corn and wheat and began gradually reducing them for soy products. Argentina is the world’s top exporter of soybean meal and soybean oil and the No. 3 shipper of raw soybeans.

INFRASTRUCTURE DELAYED

The IMF expects Argentina’s government debt to peak at 65 percent by year-end and then fall as the country narrows its fiscal deficit.

In order to do so, the government will freeze hiring and cap public sector salaries, extend cuts to energy subsidies and delay infrastructure projects deemed non-essential.

The official said the projects that will be delayed include a $2.2 billion hydroelectric dam that would have been built by Germany’s Voith GmbH, and two nuclear reactors that would have been financed 85 percent by Chinese institutions and 15 percent by Argentina’s Treasury.

Debt is forecast fall to 56 percent by 2021, the final year of its program, according to the report.

In a statement released along with the report, IMF mission chief for Argentina Roberto Cardarelli said the South American country’s economy would shrink in the second and third quarters of 2018.

The deal also limits the central bank’s ability to intervene in the foreign exchange market by placing a floor on growth in reserves, according to the document. (Reporting by Luc Cohen, Maximiliano Rizzi and Eliana Raszewski; editing by Rosalba O’Brien, G Crosse)